VC escapism in search of dumb money

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I wrote three years ago that investing in green-tech is not a Venture compatible model, and my presentation 2010: The State of Venture Capital makes clear that neither is biotech.

Now VC are drifting away from bio-tech based on the reportedly deplorable state of “the market for bio-tech IPOs”. Wait, aren’t we “the market”?

VCs are simply drifting in whatever way allows them to raise their next fund, and trap any Limited Partner not smart enough to see through their nonsense. Here is how VCs have jumped aimlessly around over the last twenty years, chronologically (yet not meant to be complete in granularity):

  • Enterprise
  • Client/server
  • Health-tech
  • Consumer
  • Music
  • Biotech
  • China
  • Security
  • Consumer
  • Open Source
  • Capital Efficiency
  • Green-tech
  • Agriculture
  • Health-tech
  • China
  • Micro
  • Gaming
  • Cloud
  • Social Networking
  • China

All of which herding contributed to negative 4.6% 10-year IRRs. One should have noticed notice that not the identification of popularity produces Venture returns, but the acute value to the public remains the only constant that drives returns.

With Limited Partners in the U.S. slowly taking note of the systemic failure of Venture to scale to the size of the underlying opportunity and turning up the screws, VCs seek the path of least resistance and travel the world in search for dumb money that keeps them and their cushy management fees afloat.

Many foreign countries will fall for it as they have fallen for the fallacies of the free-market that Venture is not, yet it’s underlying assets so desperately require to produce disruptive value. Let alone a culture of innovation that takes 20-30 years to build.

So unchanged, I predict the continued failure of Venture globally. But it may take 10 years for you to figure that out, while the fat cats continue to gorge themselves on those lucrative promises.

 

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About Georges van Hoegaerden

Georges is a serial entrepreneur, venture catalyst, 4x CEO, board director turned innovation economist (by fate). His ideas have raised $14M in venture capital and produced over $100M in returns. More.